Starn Tool Company has five different intangible assets to be accounted for and reported on the financial statements. The management is concerned about the amortization of the cost of each of these intangibles. Facts about each intangible follow: a. Patent. The company purchased a patent at a cash cost of $55,900 on January 1, 2011. The patent has an estimated useful life of 13 years. b. Copyright. On January 1, 2011, the company purchased a copyright for $22,500 cash. It is estimated that the copyrighted item will have no value by the end of 10 years. c. Franchise. The company obtained a franchise from McKenna Company to make and distribute a special item. It obtained the franchise on January 1, 2011, at a cash cost of $14,400 for a 10-year period. d. License. On January 1, 2010, the company secured a license from the city to operate a special service for a period of five years. Total cash expended to obtain the license was $14,000. e. Goodwill. The company started business in January 2008 by purchasing another business for a cash lump sum of $400,000. Included in the purchase price was “Goodwill, $40,000.” Company executives stated that “the goodwill is an important long-lived asset to us.” It has an indefinite life. Required: 1. Compute the amount of amortization that should be recorded for each intangible asset at the end of the annual accounting period, December 31, 2011. 2. Give the book value of each intangible asset on December 31, 2012. 3. Assume that on January 2, 2013, the copyrighted item was impaired in its ability to continue to produce strong revenues. The other intangible assets were not affected. Starn estimated that the copyright would be able to produce future cash flows of $17,000. The fair value of the copyright was determined to be $16,000. Compute the amount, if any, of the impairment loss to be recorded.
> PepsiCo, Inc., manufactures a number of products that are part of our daily lives. Its businesses include Pepsi, Frito-Lay, Tropicana, Quaker, and Gatorade. The company’s annual revenues exceed $22 billion. A recent PepsiCo annual report contained the fo
> Using the data from the previous exercise, complete the following requirements. Required: 1. Determine the financial statement effects for each of the following: (a) issuance of the note on November 1, (b) the impact of the adjusting entry at the end
> Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Neiman Marcus is one of America’s most prestigious retailers. Each Christmas season, Neiman Marcus builds up its inventory to meet th
> Oaks Company has completed the payroll for January 2012, reflecting the following data: Salaries and wages earned..........................$86,000 Employee income taxes withheld...................10,000 FICA payroll taxes*...............................
> Paul Company completed the salary and wage payroll for March 2011. The payroll provided the following details: Salaries and wages earned..................................$200,000 Employee income taxes withheld...........................40,000 Insurance
> East Hill Home Healthcare Services was organized on January 1, 2011, by four friends. Each organizer invested $10,000 in the company and, in turn, was issued 8,000 shares of stock. To date, they are the only stockholders. At the end of 2012, the accounti
> Diane Corporation is preparing its 2012 balance sheet. The company records show the following selected amounts at the end of the accounting period, December 31, 2012: Total assets..........................................................................
> On January 1, 2011, you plan to take a trip around the world upon graduation four years from now. Your grandmother wants to deposit sufficient funds for this trip in a savings account for you. On the basis of a budget, you estimate that the trip currentl
> Many advertisements contain offers that seem too good to be true. A few years ago, an actual newspaper ad offered “a $150,000 house with a zero interest rate mortgage” for sale. If the purchaser made monthly payments of $3,125 for four years ($150,000 ÷
> Identify whether the following transactions affect cash flow from operating, investing, or financing activities, and indicate the effect of each on cash ( + for increase and − for decrease). If there is no cash flow effect,
> In some cases, a manager can engage in transactions that improve the appearance of financial reports without affecting the underlying economic reality. In this chapter, we discussed the importance of liquidity as measured by the quick ratio and working c
> The New York State Lottery Commission ran the following advertisement in a number of New York newspapers: The Lotto jackpot for Wednesday, August 25, 1999, will be $3 million including interest earned over a 20-year payment period. Constant payments will
> The president of a regional wholesale distribution company planned to borrow a significant amount of money from a local bank at the beginning of the next fiscal year. He knew that the bank placed a heavy emphasis on the liquidity of potential borrowers.
> Refer to the financial statements of American Eagle given in Appendix B at the end of this book. Required: 1. What is the amount of accrued compensation and payroll taxes at the end of the most recent reporting year? 2. By what amount did accounts payab
> Refer to the financial statements of American Eagle (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book. Required: 1. Compute the quick ratio for each company for the current year. 2. Compare
> Refer to the financial statements of Urban Outfitters given in Appendix C at the end of this book. Required: 1. What is the amount of accrued compensation at the end of the most recent reporting year? 2. By what amount did accounts payable change over t
> For each of the following transactions, determine whether cash flows from operating activities will increase, decrease, or remain the same: a. Purchased merchandise for cash. b. Paid salaries and wages for the last month of the previous accounting peri
> Exxon Mobil Corporation explores, produces, refines, markets, and supplies crude oil, natural gas, and petroleum products in the United States and around the world. The following are accounts from a recent balance sheet of Exxon Mobil Corporation: Requ
> After completing a long and successful career as senior vice president for a large bank, you are preparing for retirement. Visiting the human resources office, you find that you have several retirement options: (1) you can receive an immediate cash paym
> On January 1, 2011, Ellsworth Company completed the following transactions (use an 8 percent annual interest rate for all transactions): a. Borrowed $2,000,000 to be repaid in five years. Agreed to pay $150,000 interest each year for the five years. b.
> State the equation for the total asset turnover ratio and explain how it is interpreted.
> General Mills is a multibillion-dollar company that makes and sells products used in the kitchens of most American homes. The Company’s annual report included the following note: We have a revolving credit agreement expiring in two years that provides fo
> Ford Motor Company is one of the world’s largest companies with annual sales of cars and trucks in excess of $170 billion. A recent annual report for Ford contained the following note: Warranties Estimated warranty costs are accrued for at the time the
> Using data from problem AP9-1, complete the following requirements. Data from AP9-1: Sturgis Company completed the following transactions during 2012. The annual accounting period ends December 31, 2012. Jan. 15 Recorded tax expense for the year i
> Sturgis Company completed the following transactions during 2012. The annual accounting period ends December 31, 2012. Jan. 15 Recorded tax expense for the year in the amount of $125,000. Current taxes payable were $93,000.
> On January 1, 2011, Austin Auto Company decided to accumulate a fund to build an addition to its plant. The company will deposit $320,000 in the fund at each year-end, starting on December 31, 2011. The fund will earn 9 percent interest, which will be ad
> What is asset impairment? How is it accounted for?
> Define goodwill. When is it appropriate to record goodwill as an intangible asset?
> Define intangible asset. What period should be used to amortize an intangible asset with a definite life?
> Which of the following is not a financing activity on the statement of cash flows? a. When the company lends money. b. When the company borrows money. c. When the company pays dividends. d. When the company issues stock to shareholders.
> When equipment is sold for more than net book value, how is the transaction recorded? For less than net book value? What is net book value?
> Explain why revenues are recorded as credits and expenses as debits.
> Refer to E3-10 . Stacey’s Piano Rebuilding Company has been operating for one year (2010). At the start of 2011, its income statement accounts had zero balances and its balance sheet account balances were as follows: Required: Use t
> Over what period should an addition to an existing long-lived asset be depreciated? Explain.
> What type of depreciation expense pattern is used under each of the following methods and when is its use appropriate? a. The straight-line method. b. The units-of-production method. c. The double-declining-balance method.
> The estimated useful life and residual value of a long-lived asset relate to the current owner or user rather than all potential users. Explain this statement.
> In computing depreciation, three values must be known or estimated; identify and explain the nature of each.
> Distinguish among depreciation, depletion, and amortization.
> Distinguish between a. Capital expenditures and revenue expenditures. How is each accounted for? b. Ordinary repairs and improvements. How is each accounted for?
> Describe the relationship between the matching principle and accounting for long-lived assets.
> Under the cost principle, what amounts should be included in the acquisition cost of a long-lived asset?
> What are the classifications of long-lived assets? Explain each.
> At the end of a recent year, The Gap, Inc., reported total assets of $7,564 million, current assets of $4,005 million, total liabilities of $3,177 million, current liabilities of $2,158 million, and stockholders’ equity of $4,387 million. What is its cur
> Explain why stockholders’ equity is increased by revenues and decreased by expenses.
> How is the fixed asset turnover ratio computed? Explain its meaning.
> Define long-lived assets. Why are they considered to be a “bundle of future services”?
> Why is depreciation expense added to net income (indirect method) on the statement of cash flows?
> On January 2, 2012, Cruz Company bought a machine for use in operations. The machine has an estimated useful life of eight years and an estimated residual value of $2,600. The company provided the following expenditures: a. Invoice price of the machine
> Rungano Corporation is a global publisher of magazines, books, and music and video collections and is a leading direct mail marketer. Many direct mail marketers use high-speed Didde press equipment to print their advertisements. These presses can cost mo
> The notes to a recent annual report from Weebok Corporation included the following: Business Acquisitions During the current year, the Company acquired the assets of Sport Shoes, Inc. . . . Assume that Weebok acquired Sport Shoe
> During the 2011 annual accounting period, BSP Company completed the following transactions: a. On January 1, 2011, purchased a patent for $28,000 cash (estimated useful life, seven years). b. On January 1, 2011, purchased the assets (not detailed) of a
> Singapore Airlines reported the following information in the notes to a recent annual report (in Singapore dollars): Singapore Airlines also reported the following cash flow details: Required: 1. Reconstruct the information in Note 19 using T-account
> During 2012, Jensen Company disposed of three different assets. On January 1, 2012, prior to their disposal, the accounts reflected the following: The machines were disposed of in the following ways: a. Machine A: Sold on January 1, 2012, for $7,200 c
> Explain the matching principle.
> Which of the following statements are true regarding the balance sheet? 1. One cannot determine the true fair market value of a company by reviewing its balance sheet. 2. Certain internally generated assets, such as a trademark, are not reported on a c
> You are a financial analyst for Ford Motor Company and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods based on a machine that cost $106,000. The estimated useful life
> Best Buy Co., Inc., headquartered in Richfield, Minnesota, is one of the leading consumer electronics retailers, operating more than 1,000 stores in the United States, Europe, Canada, China, and Mexico. The following was reported in a recent annual repor
> At the beginning of the year, Plummer’s Sports Center bought three used fitness machines from Advantage, Inc. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had t
> A recent annual report for FedEx included the following note: Assume that FedEx made extensive repairs on an existing building and added a new wing. The building is a garage and repair facility for delivery trucks that serve the Denver area. The existi
> Thornton Industries purchased a machine for $45,000 and is depreciating it with the straight-line method over a life of 10 years, using a residual value of $3,000. At the beginning of the sixth year, a major overhaul was made costing $5,000, and the tota
> When recording depreciation, which of the following statements is true? a. Total assets increase and stockholders’ equity increases. b. Total assets decrease and total liabilities increase. c. Total assets decrease and stockholders’ equity increases.
> Company X is going to retire equipment that is fully depreciated with no residual value. The equipment will simply be disposed of, not sold. Which of the following statements is false? a. Total assets will not change as a result of this transaction. b.
> How many of the following statements regarding goodwill are true? ■ Goodwill is not reported unless purchased in an exchange. ■ Goodwill must be reviewed annually for possible impairment. ■ Impairment of goodwill results in a decrease in net income. a.
> A company wishes to report the highest earnings possible for financial reporting purposes. Therefore, when calculating depreciation, a. It will follow the MACRS depreciation tables prescribed by the IRS. b. It will select the shortest lives possible fo
> Define accrual accounting and contrast it with cash basis accounting.
> What assets should be amortized using the straight-line method? a. Intangible assets with definite lives b. Intangible assets with indefinite lives c. Natural resources d. All of the above
> The Cash T-account has a beginning balance of $21,000. During the year, $98,000 was debited and $110,000 was credited to the account. What is the ending balance of Cash? a. $33,000 debit balance b. $9,000 credit balance c. $33,000 credit balance d. $
> Under what method(s) of depreciation is an asset’s net book value the depreciable base (the amount to be depreciated)? a. Straight-line method b. Declining-balance method c. Units-of-production method d. All of the above
> Ryan, Inc., uses straight-line depreciation for all of its depreciable assets. Ryan sold a used piece of machinery on December 31, 2012, that it purchased on January 1, 2011, for $10,000. The asset had a five-year life, zero residual value, and $2,000 ac
> Barber, Inc., followed the practice of depreciating its building on a straight-line basis. A building was purchased in 2011 and had an estimated useful life of 25 years and a residual value of $20,000. The company’s depreciation expense for 2011 was $20,
> Miga Company and Porter Company both bought a new delivery truck on January 1, 2008. Both companies paid exactly the same cost, $30,000, for their respective vehicles. As of December 31, 2011, the net book value of Miga’s truck was less than Porter Compa
> For each of the following long-lived assets, indicate its nature and the related cost allocation concept. Use the following symbols: Nature Cost Allocation Concept DR Depreciation DP L Land Building Equipment Natural resource Depletion E A Amortiza
> Wexler Company had the following activities for the year ended December 31, 2012: Sold land that cost $18,000 for $18,000 cash; purchased $181,000 of equipment, paying $156,000 in cash and signing a note payable for the rest; and recorded $5,500 in depre
> Elizabeth Pie Company has been in business for 50 years and has developed a large group of loyal restaurant customers. Giant Bakery Inc. has made an offer to buy Elizabeth Pie Company for $5,000,000. The book value of Elizabeth Pie’s recorded assets and
> As part of a major renovation at the beginning of the year, Scheffer’s Pharmacy, Inc., sold shelving units (store fixtures) that were 10 years old for $1,800 cash. The original cost of the shelves was $6,000 and they had been depreciated on a straight-li
> Refer to E2-13. Zeber Company has been operating for one year (2011). You are a member of the management team investigating expansion ideas that will require borrowing funds from banks. At the start of 2012, Zeber’s T-account balances
> For each of the following scenarios, indicate whether an asset has been impaired (Y for yes and N for no) and, if so, the amount of loss that should be recorded. Is Asset Impaired? Book Estimated Fair Amount Value Future Cash Flows Value of Loss $ 1
> Calculate the book value of a three-year-old machine that has a cost of $21,000, has an estimated residual value of $1,000 and an estimated useful life of 40,000 machine hours. The company uses units-of production depreciation and ran the machine 3,200 h
> Which of the following describes how assets are listed on the balance sheet? a. In alphabetical order b. In order of magnitude, lowest value to highest value c. From most liquid to least liquid d. From least liquid to most liquid
> Calculate the book value of a three-year-old machine that has a cost of $45,000, an estimated residual value of $5,000, and an estimated useful life of four years. The company uses double-declining-balance depreciation. Round to the nearest dollar.
> Calculate the book value of a three-year-old machine that has a cost of $31,000, an estimated residual value of $1,000, and an estimated useful life of five years. The company uses straight-line depreciation.
> For each of the following items, enter the correct letter to the left to show the type of expenditure. Use the following: Type of Expenditure Transactions Capital expenditure Revenue expenditure (1) Purchased a patent, $4,300 cash. (2) Paid $10,000
> The following information was reported by Kramer’s Air Cargo Service for 2008: Net fixed assets (beginning of year)......................$1,900,000 Net fixed assets (end of year)..................................2,300,000 Net sales for the year.........
> The following is a list of account titles and amounts (dollars in millions) from a recent annual report of Hasbro, Inc., a leading manufacturer of games, toys, and interactive entertainment software for children and families: Required: Prepare the ass
> Burbank Company owns the building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows: Cost when acquired............................................................................
> At the end of the annual accounting period, December 31, 2012, O’Connor Company’s records reflected the following for Machine A: Cost when acquired............................$30,000 Accumulated depreciation....................10,200 During January 201
> Explain what the time period assumption means.
> Refer to E8-5. Information from E8-5: Nasoff Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2011, an asset account for the company showed the following balances: Manufacturing equ
> You are considering investing the cash gifts you received for graduation in various stocks. You have received several annual reports of major companies. Required: For each of the following, indicate where you would locate the information in an annual r
> Starbucks Corporation is the leading roaster and retailer of specialty coffee, with nearly 17,000 company-operated and licensed stores worldwide. Assume that Starbucks planned to open a new store on Commonwealth Avenue near Boston University and obtained
> The T-account is a tool commonly used for analyzing which of the following? a. Increases and decreases to a single account in the accounting system. b. Debits and credits to a single account in the accounting system. c. Changes in specific account bal
> Refer to the financial statements of American Eagle Outfitters in Appendix B at the end of this book. Required: 1. Is the company a corporation, a partnership, or a sole proprietorship? How do you know? 2. The company shows on the balance sheet that inv
> Cheshire Company had three intangible assets at the end of 2011 (end of the accounting year): a. A copyright purchased on January 1, 2011, for a cash cost of $12,300. The copyright is expected to have a 10-year useful life to Cheshire. b. Goodwill of $
> Trotman Company had three intangible assets at the end of 2012 (end of the accounting year): a. Computer software and Web development technology purchased on January 1, 2011, for $70,000. The technology is expected to have a four-year useful life to the
> Freeport-McMoRan Copper & Gold Inc., headquartered in Phoenix, Arizona, is one of the world’s largest copper, gold, and molybdenum mining and production companies, with its principal asset in natural resource reserves (approximately 102.0 billion pounds
> On January 1, 2012, the records of Seward Corporation showed the following regarding a truck: Equipment (estimated residual value, $8,000).......................$18,000 Accumulated depreciation (straight-line, three years)................6,000 On Decem
> Marriott International is a worldwide operator and franchisor of hotels and related lodging facilities totaling over $1.4 billion in property and equipment. It also develops, operates, and markets time-share properties totaling nearly $2 billion. Assume
> Describe a typical business operating cycle.
> FedEx is the world’s leading express-distribution company. In addition to the world’s largest fleet of allcargo aircraft, the company has more than 654 aircraft and 51,000 vehicles and trailers that pick up and deliver packages. Assume that FedEx sold a
> In a recent 10-K report, United Parcel Service states it “is the world’s largest package delivery company, a leader in the U.S. less-than-truckload industry, and a global leader in supply chain management.â€
